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Banking & Finance

SBV: Banks should avoid lending to sectors with risk

Released at: 17:11, 26/01/2018

SBV: Banks should avoid lending to sectors with risk

Illustrative image (Source: vov.vn)

Central bank directs banks to keep credit growth in real estate and stock markets within safe limits.

by Quang Huy

The State Bank of Vietnam (SBV) has ordered lenders to tighten control of investment loans intended for the stock and real estate markets.

A recent statement from the SBV said lenders should avoid focusing on stock and real estate customers and maintain credit growth in these sectors within safe limits. They must also keep track of their debtors’ finances and the progress of their projects.

“Credit expansion should go hand-in-hand with strict supervision to ensure loans are used for their intended purpose and do not add to bad debts,” the statement said.

The warning comes in the wake of a property development crisis in Ho Chi Minh City, where the main contractor, American General Construction Inc., halted all its operations in the city earlier this month, claiming it had only received 60 per cent of its payment for a high-end apartment project. The parties involved are still trying to deal with the crisis.

The central bank said lenders should divert their focus from “risky areas” to the manufacturing sector and give priority to agriculture, exports, support industries, and high-tech investments.

Mr. Nguyen Quoc Hung, a senior official at the SBV’s Credit Department, told a press briefing on January 25 that credit growth in risky areas was successfully controlled last year. The real estate sector reported 8.56 per cent credit growth last year, compared to 12.86 per cent in 2016, he said.

SBV Deputy Governor Ms. Nguyen Thi Hong said it will maintain strict control this year as Vietnam’s economy has become more open and vulnerable to fluctuations on the global market.

Bad debts in Vietnam’s banking sector, mostly incurred due to a slowdown in the country’s real estate market in the early 2010s, had been cut to 2.3 per cent by the end of 2017, down from 2.46 per cent at the end of 2016, according to the SBV.

The central bank set up an institution to deal with toxic loans, the Vietnam Asset Management Corp. (VAMC), in late 2013. Credit ratings agency Moody’s upgraded its outlook for Vietnam’s banking system in October from stable to positive for the next 12 to 18 months, reflecting the country’s strong economic prospects and positive outlook for most rated banks.

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